Hexcel Reports Strong 2014 Fourth Quarter and Record Full Year Results

Fourth quarter diluted EPS of $0.54 was 17% higher than prior year
of $0.46.

Fourth quarter sales of $471.8 million were 10.5% higher than last
year (12.5% in constant currency) with growth across all markets.

Full year sales of $1,855.5 million were 10.6% higher than 2013
(10.5% in constant currency) with $311.8 million of adjusted operating
income, or 16.8% of sales (as compared to 16.1% in 2013).

Full year adjusted diluted EPS of $2.16 was 17% higher than prior
year of $1.85.

See Table C for reconciliation of GAAP and Non-GAAP operating income
and net income

Quarter Ended

December 31,

Year Ended

December 31,

(In millions, except per share data)

2014

2013

% Change

2014

2013

% Change

Net Sales

$

471.8

$

426.8

10.5%

$

1,855.5

$

1,678.2

10.6%

Net sales change in constant currency

12.5%

10.5%

Operating Income

77.1

67.0

15.1%

305.8

270.9

12.9%

Net Income

52.9

47.1

12.3%

209.4

187.9

11.4%

Diluted net income per common share

$

0.54

$

0.46

17.4%

$

2.12

$

1.84

15.2%

Non-GAAP Measures for y-o-y comparisons:

Adjusted Operating Income (Table C)

$

77.1

$

67.0

15.1%

$

311.8

$

270.9

15.1%

As a % of sales

16.3%

15.7%

16.8%

16.1%

Adjusted Net Income (Table C)

52.9

47.1

12.3%

213.6

188.5

13.3%

Adjusted diluted net income per share

$

0.54

$

0.46

17.4%

$

2.16

$

1.85

16.8%

Hexcel Corporation (NYSE:HXL)(Paris:HXL), today reported results for the
fourth quarter of 2014. Net sales during the quarter were $471.8
million, 10.5% higher than the $426.8 million reported for the fourth
quarter of 2013. Operating income for the period was $77.1 million,
compared to $67.0 million last year. Net income for the fourth quarter
of 2014 was $52.9 million, or $0.54 per diluted share, compared to $47.1
million or $0.46 per diluted share in 2013.

Chief Executive Officer Comments

Nick Stanage commented, “Hexcel delivered another strong quarter to end
the year with record sales, operating income and margin, and net income.
We achieved record sales in the fourth quarter as a result of solid
performance across all of our markets. For the quarter, our diluted EPS
of $0.54 was 17% higher than last year, on a 12.5% increase in constant
currency sales. For the year, sales increased 10.5% in constant
currency, with our adjusted operating income up 15% and our adjusted EPS
17% higher. We are particularly pleased that for the year we met our
target adjusted operating income leverage of 23% and generated free cash
flow of nearly $58 million.”

Looking ahead, Mr. Stanage said, “As outlined in our 2015 guidance and
2020 vision released last week, the company’s focus in 2015 will be
driving manufacturing throughput, capacity expansion and superior
execution to prepare for the substantial production ramp up that begins
this year and accelerates significantly in 2016 and 2017.”

Markets

Commercial Aerospace

Commercial Aerospace sales of $307.4 million increased 8.4% (9.7% in
constant currency) for the quarter as compared to the fourth quarter
of 2013. Revenues attributed to new aircraft programs (B787, A350,
A320neo and B737 MAX) increased more than 25% over the same period
last year with the A350 shipments leading the growth. Sales for Airbus
and Boeing legacy aircraft rose modestly compared to the fourth
quarter of 2013. For the full year 2014, new program sales increased
more than 35%, and Airbus and Boeing legacy aircraft increased 3%.

Sales to “Other Commercial Aerospace,” which include regional and
business aircraft customers, maintained approximately the same run rate
as the first three quarters of 2014 and were slightly higher compared to
the fourth quarter of 2013. For the year, these sales were up over 10%
as compared to 2013, led by business jet sales.

Space & Defense

Fourth quarter Space & Defense sales of $99.6 million were 12.2%
higher (14.2% in constant currency) than the fourth quarter of 2013,
primarily from growth in the rotorcraft sector and a modest shift in
customer orders from the third to the fourth quarter. The strong
fourth quarter brought sales for the second half of the year to about
the same level as the first half, and for the year to the same level
as 2013. Hexcel participates in a wide range of programs, in the US,
Europe and Asia, including rotorcraft, transport, fixed wing and
satellite programs, with rotorcraft accounting for just under 60% of
Space & Defense sales.

Industrial

Total Industrial sales of $64.8 million for the fourth quarter of 2014
were 19.1% higher (24.9% in constant currency) than the fourth quarter
of 2013. Wind energy sales were up about 30% in constant currency as
compared to the comparable period in 2013. The rest of the Industrial
sales were up more than 15% as compared to the fourth quarter of 2013.
For the year, Industrial sales were up 21.1% in constant currency,
including the wind submarket which increased more than 25% from 2013.
All Industrial markets rebounded well in 2014 after a weak 2013.

Operations

Sales growth and continued improvement in operating performance
resulted in gross margin of 27.2% as compared to 26.5% in the fourth
quarter of 2013. For the year, gross margin was 27.4% as compared to
27.1% in 2013. Selling, General and Administrative expenses for the
year were $149.1 million or 5.4% higher than 2013, reflecting added
infrastructure to support growth. For the year, Research and
Technology expenses were $47.9 million as compared to $41.7 million in
2013. The higher spending reflects the increased efforts on new
product and process developments supporting our growth and
productivity initiatives.

Adjusted operating income for the fourth quarter was $77.1 million or
16.3% of sales as compared to $67.0 million or 15.7% of sales in the
fourth quarter of 2013. Adjusted operating income for 2014 was $311.8
million or 16.8% of sales as compared to $270.9 million or 16.1% of
sales in 2013. There was nominal impact from exchange rates on our
operating income margin percentage as compared to 2013. For the full
year, 2014 adjusted operating income leverage was 23% on the
incremental sales driven by continued improvement in operating
performance offsetting a $11.9 million increase in depreciation
expense.

Tax

The tax provision was $22.4 million for the fourth quarter of 2014
resulting in an effective tax rate of 29.9%. The quarter benefitted
from the extension in December of the U.S. Research & Development tax
credits for 2014. Excluding this benefit, our tax rate would have been
30.9%. Last year’s fourth quarter tax provision was $18.8 million, an
effective tax rate of 28.7%, which benefitted primarily from the
release of reserves for uncertain tax positions. For the full year
2014, the Company’s effective tax rate was 30.0% compared to 28.9% in
2013. Excluding the impact of discrete items, adjusted effective tax
rates for 2014 and 2013 would have been 30.6% and 30.7%, respectively.

Cash and other

In 2014, Hexcel generated $58 million of free cash flow (defined as
cash provided from operating activities less cash paid for capital
expenditures) versus $78 million in 2013, primarily reflecting higher
capital expenditures (cash used for capital expenditures was $260
million in 2014 as compared to $195 million in 2013), partially offset
by higher earnings.

During the year, the Company used $160 million to repurchase shares of
its common stock. There is $100 million remaining under the authorized
share repurchase program. Total debt, net of cash as of December 31,
2014 was $345.4 million, an increase of $115.9 million from December
31, 2013.

As announced on January 12, 2015, the Board of Directors declared a
$0.10 quarterly dividend. This is the first dividend paid by the
Company since 1992. The dividend will be payable to stockholders of
record as of February 3, 2015, with a payment date of February 17,
2015.

2015 Outlook

Sales of $1.9-$2.0 billion

Adjusted diluted earnings per share of $2.26 to $2.38

Free cash flow of $10-$60 million, with the typical use of cash in the
first quarter

Accrual basis capital expenditures of $260-$290 million

*****

Hexcel will host a conference call at 10:00 A.M. ET, tomorrow, January
23, 2015 to discuss the fourth quarter results and respond to analyst
questions. The telephone number for the conference call is (719)
457-2628 and the confirmation code is 8530201. The call will be
simultaneously hosted on Hexcel’s web site at www.hexcel.com/investors/index.html.
Replays of the call will be available on the web site for approximately
three days.

This press release contains statements that are forward looking,
including statements relating to anticipated trends in constant currency
for the markets we serve (including changes in commercial aerospace
revenues, the estimates and expectations based on aircraft production
rates provided or publicly available by Airbus, Boeing and others, the
revenues we may generate from an aircraft model or program, the impact
of delays in the startup or ramp-ups of new aircraft programs, the
outlook for space & defense revenues and the trend in wind energy,
recreation and other industrial applications, including whether certain
programs might be curtailed or discontinued or customers’ inventory
levels reduced); our ability to maintain and improve margins in light of
the current economic environment; the success of particular applications
as well as the general overall economy; our ability to manage cash from
operating activities and capital spending in relation to future sales
levels such that the company funds its capital spending plans from cash
flows from operating activities, but, if necessary, maintains adequate
borrowings under its credit facilities to cover any shortfalls; and the
impact of the above factors on our expectations of all financial results
for 2015 and beyond. The loss of, or significant reduction in purchases
by Airbus, Boeing, Vestas, or any of our other significant customers
could materially impair our business, operating results, prospects and
financial condition. Actual results may differ materially from the
results anticipated in the forward looking statements due to a variety
of factors, including but not limited to changes in currency exchange
rates, changing market conditions, increased competition, inability to
install, staff and qualify necessary capacity or achievement of planned
manufacturing improvements, conditions in the financial markets, product
mix, achieving expected pricing and manufacturing costs, availability
and cost of raw materials, supply chain disruptions, work stoppages or
other labor disruptions and changes in or unexpected issues related to
environmental regulations, legal matters, interest rates and tax codes.
Additional risk factors are described in our filings with the SEC. We do
not undertake an obligation to update our forward-looking statements to
reflect future events.

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

Unaudited

Quarter Ended

December 31,

Year Ended

December 31,

(In millions, except per share data)

2014

2013

2014

2013

Net sales

$

471.8

$

426.8

$

1,855.5

$

1,678.2

Cost of sales

343.3

313.7

1,346.7

1,224.2

Gross margin

128.5

113.1

508.8

454.0

% Gross margin

27.2%

26.5%

27.4%

27.1%

Selling, general and administrative expenses

38.1

35.7

149.1

141.4

Research and technology expenses

13.3

10.4

47.9

41.7

Other operating expense (a)

—

—

6.0

—

Operating income

77.1

67.0

305.8

270.9

Interest expense, net

2.1

1.6

8.0

7.3

Non-operating expense (b)

—

—

0.5

1.0

Income before income taxes and equity in earnings from affiliated
companies

75.0

65.4

297.3

262.6

Provision for income taxes

22.4

18.8

89.3

76.0

Income before equity in earnings from affiliated companies

52.6

46.6

208.0

186.6

Equity in earnings from affiliated companies

0.3

0.5

1.4

1.3

Net income

$

52.9

$

47.1

$

209.4

$

187.9

Basic net income per common share:

$

0.55

$

0.47

$

2.16

$

1.88

Diluted net income per common share:

$

0.54

$

0.46

$

2.12

$

1.84

Weighted-average common shares:

Basic

95.6

99.7

96.8

100.0

Diluted

97.5

101.9

98.7

102.1

(a) Other operating expense for the year ended December 31, 2014
reflects an increase in environmental reserves related to a
manufacturing facility in Lodi, New Jersey which we sold in 1986.

(b) Non-operating expense is the accelerated amortization of deferred
financing costs related to refinancing our credit facility in September
2014 and June 2013.

Less – Treasury stock, at cost, 9.3 and 5.1 shares at December 31,
2014 and

December 31, 2013, respectively.

(305.4

)

(129.7

)

Total stockholders' equity

1,149.9

1,160.4

Total liabilities and stockholders' equity

$

2,036.4

$

1,836.1

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

Unaudited

Year to Date Ended

December 31,

(In millions)

2014

2013

Cash flows from operating activities

Net income

$

209.4

$

187.9

Reconciliation to net cash provided by operating activities:

Depreciation and amortization

71.2

59.3

Amortization of deferred financing costs

1.6

2.1

Deferred income taxes

39.7

16.4

Equity in earnings from affiliated companies

(1.4

)

(1.3

)

Stock-based compensation expense

17.2

18.9

Excess tax benefits on stock-based compensation

(5.8

)

(5.3

)

Changes in assets and liabilities:

(Increase) decrease in accounts receivable

(15.4

)

6.4

(Increase) in inventories

(38.8

)

(28.4

)

(Increase) in prepaid expenses and other current assets

4.1

(3.3

)

Increase in accounts payable/accrued liabilities

40.1

19.2

Other – net

(3.9

)

1.0

Net cash provided by operating activities (a)

318.0

272.9

Cash flows from investing activities

Capital expenditures (b)

(260.1

)

(194.9

)

Investments in affiliated companies

(10.3

)

—

Net cash used in investing activities

(270.4

)

(194.9

)

Cash flows from financing activities

Borrowings from senior unsecured credit facility

481.0

—

Borrowings from previous senior secured credit facility

189.0

309.0

Repayment of previous senior secured credit facility

(481.0

)

(182.0

)

Repayment of senior unsecured credit facility

(66.0

)

—

Repayments of other debt, net

(1.7

)

(3.8

)

Issuance costs related to senior credit facilities

(1.4

)

(2.4

)

Repayment of senior secured credit facility – term loan

—

(85.0

)

Stock repurchases

(160.0

)

(90.0

)

Activity under stock plans

3.2

7.0

Net cash used in financing activities

(36.9

)

(47.2

)

Effect of exchange rate changes on cash and cash equivalents

(5.3

)

2.1

Net increase in cash and cash equivalents

5.4

32.9

Cash and cash equivalents at beginning of period

65.5

32.6

Cash and cash equivalents at end of period

$

70.9

$

65.5

Supplemental Data:

Free cash flow (a)+(b)

$

57.9

$

78.0

Cash interest paid

8.1

7.6

Cash taxes paid

27.5

49.0

Accrual basis additions to property, plant and equipment

$

270.2

$

206.5

Hexcel Corporation and Subsidiaries

Net Sales to Third-Party Customers by Market

Quarters Ended December 31, 2014 and 2013

(Unaudited)

Table A

(In millions)

As Reported

Constant Currency (a)

Market

2014

2013

B/(W) %

FX Effect (b)

2013

B/(W) %

Commercial Aerospace

$

307.4

$

283.6

8.4

$

(3.3)

$

280.3

9.7

Space & Defense

99.6

88.8

12.2

(1.6)

87.2

14.2

Industrial

64.8

54.4

19.1

(2.5)

51.9

24.9

Consolidated Total

$

471.8

$

426.8

10.5

$

(7.4)

$

419.4

12.5

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

65.2

66.5

66.8

Space & Defense

21.1

20.8

20.8

Industrial

13.7

12.7

12.4

Consolidated Total

100.0

100.0

100.0

Years Ended December 31, 2014 and 2013

(Unaudited)

(In millions)

As Reported

Constant Currency (a)

Market

2014

2013

B/(W) %

FX Effect (b)

2013

B/(W) %

Commercial Aerospace

$

1,215.3

$

1,084.5

12.1

$

0.1

$

1,084.6

12.1

Space & Defense

375.8

375.9

—

0.6

376.5

(0.2

)

Industrial

264.4

217.8

21.4

0.6

218.4

21.1

Consolidated Total

$

1,855.5

$

1,678.2

10.6

$

1.3

$

1,679.5

10.5

Consolidated % of Net Sales

%

%

%

Commercial Aerospace

65.5

64.6

64.6

Space & Defense

20.3

22.4

22.4

Industrial

14.2

13.0

13.0

Consolidated Total

100.0

100.0

100.0

(a) To assist in the analysis of our net sales trend, total net sales
and sales by market for the quarter and year ended December 31, 2013
have been estimated using the same U.S. dollar, British pound and Euro
exchange rates as applied for the respective period in 2014 and are
referred to as “constant currency” sales.

(b) FX effect is the estimated impact on “as reported” net sales due to
changes in foreign currency exchange rates.

Hexcel Corporation and Subsidiaries

Segment Information

(Unaudited)

Table B

(In millions)

Composite Materials

Engineered Products

Corporate & Other (a)

Total

Fourth Quarter 2014

Net sales to external customers

$

360.1

$

111.7

$

—

$

471.8

Intersegment sales

13.6

0.8

(14.4

)

—

Total sales

373.7

112.5

(14.4

)

471.8

Operating income (loss) (b)

78.7

16.3

(17.9

)

77.1

% Operating margin

21.1

%

14.4

%

16.3

%

Depreciation and amortization

17.2

1.4

—

18.6

Stock-based compensation expense

1.1

0.2

1.9

3.2

Accrual based additions to capital expenditures

86.7

4.3

—

91.0

Fourth Quarter 2013

Net sales to external customers

$

324.8

$

102.0

$

—

$

426.8

Intersegment sales

16.2

0.6

(16.8

)

—

Total sales

341.0

102.6

(16.8

)

426.8

Operating income (loss)

68.5

15.5

(17.0

)

67.0

% Operating margin

20.1

%

15.1

%

15.7

%

Depreciation and amortization

15.4

1.2

—

16.6

Stock-based compensation expense

1.4

0.3

2.5

4.2

Accrual based additions to capital expenditures

81.4

3.2

—

84.6

Full Year 2014

Net sales to external customers

$

1,420.9

$

434.6

$

—

$

1,855.5

Intersegment sales

66.7

1.8

(68.5

)

—

Total sales

1,487.6

436.4

(68.5

)

1,855.5

Operating income (loss) (b)

308.8

67.0

(70.0

)

305.8

% Operating margin

20.8

%

15.3

%

16.5

%

Other operating expense (b)

—

—

6.0

6.0

Depreciation and amortization

65.5

5.5

0.2

71.2

Stock-based compensation expense

5.4

1.1

10.7

17.2

Accrual based additions to capital expenditures

260.1

10.1

—

270.2

Full Year 2013

Net sales to external customers

$

1,286.9

$

391.3

$

—

$

1,678.2

Intersegment sales

68.0

1.8

(69.8

)

—

Total sales

1,354.9

393.1

(69.8

)

1,678.2

Operating income (loss)

276.3

58.9

(64.3

)

270.9

% Operating margin

20.4

%

15.0

%

16.1

%

Depreciation and amortization

54.4

4.7

0.2

59.3

Stock-based compensation expense

5.7

1.2

12.0

18.9

Accrual based additions to capital expenditures

194.6

11.9

—

206.5

(a) We do not allocate corporate expenses to the operating segments.

(b) Corporate and other for the year ended December 31, 2014 includes a
$6 million charge to increase environmental reserves related to a
manufacturing facility in Lodi, New Jersey which we sold in 1986.

Hexcel Corporation and Subsidiaries

Reconciliation of GAAP and Non-GAAP (adjusted) Operating Income
and Net Income

Table C

Unaudited

Quarter Ended

December 31,

Year Ended

December 31,

(In millions)

2014

2013

2014

2013

GAAP operating income

$

77.1

$

67.0

$

305.8

$

270.9

- Other operating expense (a)

—

—

6.0

—

Adjusted operating Income

$

77.1

$

67.0

$

311.8

$

270.9

% of Net Sales

16.3%

15.7%

16.8%

16.1%

- Stock-based compensation expense

3.2

4.2

17.2

18.9

- Depreciation and amortization

18.6

16.6

71.2

59.4

Adjusted EBITDA

$

98.9

$

87.8

$

400.2

$

349.2

Unaudited

Quarter Ended December 31,

2014

2013

(In millions, except per diluted share data)

As Reported

EPS

As Reported

EPS

GAAP net income

$

52.9

$ 0.54

$

47.1

$ 0.46

Adjusted net income

$

52.9

$ 0.54

$

47.1

$ 0.46

Unaudited

Year Ended December 31,

2014

2013

(In millions, except per diluted share data)

As Reported

EPS

As Reported

EPS

GAAP net income

$

209.4

$ 2.12

$

187.9

$ 1.84

- Other operating expense (net of tax) (a)

3.9

0.04

—

—

- Non-operating expense (net of tax) (b)

0.3

—

0.6

0.01

Adjusted net income

$

213.6

$ 2.16

$

188.5

$ 1.85

(a) Other operating expense for the year ended December 31, 2014
reflects an increase in environmental reserves primarily for remediation
of the site of a manufacturing facility in Lodi, New Jersey which we
sold in 1986.

(b) Non-operating expense is the accelerated amortization of deferred
financing costs refinancing our credit facility in September 2014 and
June 2013.

Management believes that adjusted operating income, adjusted EBITDA,
adjusted net income and free cash flow (defined as cash provided by
operating activities less cash payments for capital expenditures), which
are non-GAAP measurements, are meaningful to investors because they
provide a view of Hexcel with respect to ongoing operating results
excluding special items. Special items represent significant charges or
credits that are important to an understanding of Hexcel’s overall
operating results in the periods presented. In addition, management
believes that total debt, net of cash, which is also a non-GAAP measure,
is an important measure of Hexcel’s liquidity. Such non-GAAP
measurements are not recognized in accordance with generally accepted
accounting principles and should not be viewed as an alternative to GAAP
measures of performance.